Wednesday, May 18, 2011

Daily Market Commentary: 50-day MAs Defended

For the few days after I left on vacation it looked like bulls were going to undo the 'bull traps' which popped up across the different indices, but it was not to be. The Russell 2000 was picture perfect in the bearish turn, failing to challenge reinstated resistance at 855, leaving what may be a bearish head-and-shoulder pattern; the 820 level critical in this regard. Tomorrow may yet see this break (it did so intraday today, but closed just above). The clean slice of the 50-day MA is a bad omen for other indices which managed to cling on today. Technicals are all bearish and momentum hasn't reached oversold levels (on an intermediate time frame, although has on the short term). Ugly...

($RUT)

via StockCharts.com

Torrid action in Small Caps undid what looked to be a solid defense of the 50-day MA and breakout support in the Dow. Volume climbed to register a distribution day, but there may be enough to see a longside play tomorrow.

($INDU)

via StockCharts.com

The S&P managed a similar defense of its 50-day MA. But did so under the influence of a bull trap. Overhead supply remains a significant concern and it may struggle once again if it makes it back to 1,343. Technicals continue to weaken.

($SPX)

via StockCharts.com

The Nasdaq recovered a little to make it back above its 50-day MA and even managed to close a little higher. The bull trap is as much a threat here as it is for the S&P.

($SPX)

via StockCharts.com

Adding to Nasdaq woes was the breakdown of the consolidation in the Percentage of Nasdaq Stocks above the 50-day MA. At 42%, more Nasdaq stocks are below their 50-day MA than above it. True reversals usually emerge when this indicator drops below 30% - so the downside isn't done yet.

($NAA50R)

via StockCharts.com

The semiconductor index tells its own troubles. Ugly though its chart looks, especially with the loss of the 50-day MA, it has reached a potential support level of former declining resistance (now support). It's an aggressive long for those looking to play this side of the market.

($SOX)

via StockCharts.com

Tomorrow and for the next few days, longs can look to the Dow and Semiconductor index, shorts might find more fruit in Small Caps. Not a very attractive market in either case. Sell in May and Go Away proving to be apt.

Return from vacation over the weekend, but then the issue of getting the new rental house wired for internet begins....

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Dr. Declan Fallon is the Senior Market Technician and Community Director for Zignals.com. I offer a range of stock trading strategies for global markets which can be Previewed for Free with delayed trade signals. You can also view the top-10 best trading strategies for the US, UK, Europe and Rest-of-the-World in the Zignals Trading Strategy Leaderboard. The Leaderboard also supports advanced search capability so you can tailor your strategies to suit your individual requirements.

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